Palm oil rebounds as data show 40% surge in Malaysia’s exports

by BLOOMBERG

PALM oil rebounded as data showed Malaysia’s exports jumped 40% in early May, with demand bolstered after its rival and world’s biggest producer Indonesia banned shipments. 

Futures for July delivery rose as much as 2% to RM6,441 a tonne, reversing a 1.5% decline on Tuesday. Palm oil has surged 37% this year as the war in Ukraine and adverse weather tightened global vegetable oil markets. 

“At these high prices, most market participants are purchasing hand-to-mouth,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental. “So, any big fall is attracting buyers, irrespective of market fundamentals and investor sentiment,” he said. 

Indonesia, the top shipper of palm oil, has imposed a sweeping ban on exports since April 28 to control soaring domestic prices. That’s boosting demand for Malaysian supplies as the country is the second-biggest producer. 

Exports from Malaysia jumped 40% in the first 10 days of May from a month earlier, with cargoes to the European Union doubling, according to Intertek Testing Services. Shipments to top buyer, India, posted a 17% decline. 

“If the Indonesian ban is lifted, this dead cat bounce will fizzle out,” Thiagarajan said, referring to the latest gain in palm oil. “I expect that the restrictions could be lifted in the next couple of weeks.” 

His view that Indonesia’s ban will be short-lived is echoed by others in the industry. The Indonesian Palm Oil Association sees the policy ending in two to four weeks. The Malaysian government expects the ban to lift by the end of the second quarter and urged the country’s planters and refiners to “seize the opportunity from Indonesia’s absence” to boost their revenues and earnings. 

“After all, such opportunity only presents itself for a short-term given Indonesia will certainly re-look into its ban policy once both its domestic supply and pricing structure have stabilised,” Commodities Minister Zuraida Kamaruddin said in a May 10 statement.

“There is a likelihood that Indonesia will flood the global market with its inventory accumulated during the ban,” she added.